35 Years Later: Greed Is Still Not Good, but It Is also Not a Good Justification for Imposing Criminal Liability

    Now that the spring commencement address season has come to a close, I’ll take a moment to reflect on one of the most infamous commencement speeches in history. Thirty-five years ago, on May 18, 1986, Ivan Boesky addressed the graduating class of UC Berkeley’s Haas School of Business. In his speech, he famously claimed that

[g]reed is all right, by the way. I want you to know that. I think greed is really healthy. You can be greedy and still feel good about yourself.

In response, James B. Stewart notes that the “crowd burst into spontaneous applause as students laughed and looked at each other knowingly.” Den of Thieves p.261 (1992). And why not? This was the 1980s, the “Decade of Greed” (see, e.g., here and here). Boesky’s claim garnered so much attention that it was famously paraphrased by the fictional Gordon Gekko in Oliver Stone’s iconic 1987 movie, Wall Street.

    But, of course, by definition greed is not good. As Aristotle explained, greed is a vice. It is the opposite of the virtue of generosity. The greedy are “shameful love[rs] of gain” who “go to excess in taking, by taking anything from any source.” Aristotle, Nicomachean Ethics (translated by Terence Irwin).

    We often hear calls for criminal prosecution in response to rampant greed on Wall Street. For example, according to one California court, insider trading is “a manifestation of undue greed among the already well-to-do, worthy of legislated intervention if for no other reason than to send a message of censure on behalf of the American people.” There are, however, a number of problems with the use of the criminal law to combat the vice of greed.

    In my book, Insider Trading: Law, Ethics, and Reform, I argue that greed is a poor justification for criminalizing conduct in the financial industry. (I focus on greed as a justification for the criminalization of insider trading in the book, but the arguments apply to financial crimes more generally.) First, any financial regulation targeting conduct to address the problem of greed will almost certainly be over-inclusive. The proceeds of any financial scheme can be used for greedy or generous ends (think the legend of Robinhood—not the retail broker!). Second, regulating conduct on the basis of greed will also be under-inclusive—unless the plan is to criminalize all profit-making endeavors.

    Finally, while greedy acts are always harmful to the actor’s character, they are not always harmful to others. Greedy acts will typically harm others only if they are also unjust or unfair. If targeted acts are unjust or unfair, this is an independent justification for criminalization—and appeal to greed is superfluous. If, however, an act is neither unjust nor unfair, but is criminalized to combat the actor’s greed alone, then this justification violates John Stuart Mill’s time-honored Harm Principle. For Mill, the only valid justification for imposing criminal sanctions on a citizen is to prevent harm to others—harm to the character of the actor alone is insufficient justification. If a greedy act is neither unjust nor unfair, then its only conceivable harm is to the character of the actor. Consistent with Mill’s principle, Western liberal democracies have been trending away from such moralistic/vice laws. I think this is progress.

    In sum, though greed is not good, it is also not a good basis for prosecuting firms or individuals. Criminal sanctions should be imposed based on considerations of justice and fairness—not character.